Country’s Islamic banks lack products to hedge risks, say experts

Bangladesh Bank deputy governor Abu Hena Mohd Razee Hassan and Bangladesh Institute of Bank Management director general Toufic Ahmad Chowdhury are present at a discussion organised by the BIBM in Dhaka on Wednesday. — New Age photo

Country’s Islamic banks lack products despite the fact that the entities control 22 per cent share of the banking business, experts said on Wednesday.They said that the country’s Islamic banks were yet to introduce the Islamic bond known as Sukuk, a popular product in many counties including Saudi Arabia and Malaysia.Lack of products offers limited options to mitigate risk to eight banks which operate full-fledged Islamic banking and 17 others through separate Islamic banking windows in the country, they said.The banking experts made the observations while speaking at a discussion on ‘product diversification of Islamic banks: prospects and challenges’ held at the Bangladesh Institute of Bank Management auditorium in the capital, Dhaka.Former Pubali Bank managing director and BIBM supernumerary professor Helal Ahmed Chowdhury said that the Islamic banks’ stake was 22 per cent in the overall banking sector of the country but the entities lacked adequate number of products.He suggested that the banks should design small loans for product diversification that would ultimately help them hedge risks.Former Islami Bank Bangladesh managing director Md Forid Uddin Ahmed said that it was very much essential for the Islamic banks to diversify their products for hedging risks.He suggested that the entities should introduce Sukuk bonds for liquidity management.Former Bangladesh Bank executive director Yeasin Ali said that introducing new products by the Islamic banks would also help them compete with the traditional banks.BB deputy governor Abu Hena Mohd Razee Hassan, also the BIBM executive committee chairman, said, ‘Islamic finance industry is expanding rapidly with an impressive double-digit growth across the globe.’‘This segment of financial market has already become systemically important in over 12 countries like Iran, Saudi Arabia, Malaysia and Sudan with more than 15 per cent market share of their domestic banking assets,’ he said.The global Islamic finance assets surpassed $2.5 trillion at the end of last year, he said.‘As the central bank of the country, Bangladesh Bank plays its supportive role in ensuring sustainability of the financial market. In formulating regulations, the BB always seriously considers salient feature of Islamic banking transactions,’ Hassan said.He also urged the Islamic banks to work for devising more products like Sukuk bond to meet demand of the industry.‘The central bank is also thinking about the development of Sukuk market in Bangladesh,’ he said.Islami Bank Bangladesh managing director and chief executive officer Md Mahbub-Ul-Alam, however, said that the number of products of Islamic banks in Bangladesh was higher than that of the traditional banks.He, however, said that product diversification would also help Islamic banks contain risk of defaulted loans.BIBM director general Toufic Ahmad Chowdhury said that there were challenges for the Islamic banks, which could be mitigated by introducing new products.